"Tax Expenditures" are Spending?
Scott Hodge, president of the Tax Foundation, asks whether “‘tax expenditures’ (are) really spending in the tax code” at their Tax Policy Blog today. He first notes:
“During his speech yesterday, President Obama made a big point of how he would take on "tax expenditures," what he calls "spending in the tax code."
“What are tax expenditures and what does the President mean by "spending in the tax code"? This was one of the topics I addressed during my recent testimony before the Senate Budget Committee.”He then includes pertinent portions from his testimony before the Senate Budget Committee:
“According to the Joint Committee on Taxation, "tax expenditures include any reductions in income tax liabilities that result from special tax provisions or regulations that provide tax benefits to particular taxpayers."[i] These special preferences are called tax expenditures because some people consider them the equivalent of direct spending through the tax code.
“However, aside from the refundable cash outlay portion of some credits, tax expenditures are really not the same as direct spending. Instead, they are an attempt to achieve certain public policy goals by inducing or incenting taxpayers with the prospect of a lower tax bill. Essentially, lawmakers are trying to get taxpayers to achieve these policy objectives by using their own money, not "the government's."
“To be sure, many people improperly view the forgone revenue from tax expenditures as "the government's money." By this view, what the tax code allows taxpayers to keep through tax preferences has thus been "spent" in the same manner as a government program.
“But there is a very real moral and functional difference between the government taking $1,000 from a taxpayer and giving it to the Department of Energy for switch grass research, and a tax preference which allows that taxpayer to keep $1,000 of his own money because he purchased new windows for his home. The tax credit may be poor tax policy, but the transaction is clearly one that the taxpayer chose of his own accord. The government did not actively take his money and give it to Home Depot for the new windows.”Before concluding, “The primary goal should be to promote long-term economic growth and better living standards for the American people,” Hodge points out:
“The President and many in his party are very cleverly trying to shift the terms of the debate. It is obvious that they believe that Americans will not accept higher taxes, unless of course they are on the "rich." And they know people will not easily give up such things as the mortgage interest deduction and the state and local tax deduction. However, if the universe of tax deductions can be recast as "spending in the tax code," then cutting them will sound fiscally responsible.”
As noted before, we're still unable to provide "links" to the source webpages we reference. UPDATE (April 15, 2911), Thanks to the help of Larry Mayer, I finally downloaded an earlier version of Firefox so that I can "insert" links into Growls blogs.